What is Economics
The study of how people seek to satisfy their need and wants by making choices.
- definition: the concept of having unlimited wants vs. having limited resources
Macroeconomics vs. Microeconomics
- involves economic problems encountered by the nation as a whole
- concerned with the economic problems faced by individual unites within the overall economy
Four Factors of Production (Resources)
- definition: natural resources that are used to make goods and services
- definition: the effort that people devote for a paid task
definition: any human-made resource used to create other goods and services
Physical capital: tools and buildings
Human capital: skills and knowledge through education and experience
- definition: a person who uses the three factors of production to create goods and services
Needs vs. Wants
Need - There is no other alternative
We do not NEED anything!
Economics is about placing value on the things that you WANT and making CHOICES based on these wants.
Every Choice Has a Cost
Nothing is free.
When you make a choice, the best alternative you gave up as a result is known as the opportunity cost.
All the possible things that you give up would referred to a trade-off
Every choice, however large or small, will incur an opportunity cost.
Positive Economics vs. Normative Economics
- branch of economics analysis that describes the way the economy actually works
- branch of economic analysis that interjects subjective claims on how the economy should work
If a new tax is implemented, the state will collect $1 million in new revenue.
If the government provides a safety net for citizens, income taxes will be increased.
If you spend 15 hours studying AP Microeconomics, you will get a 5 on Microeconomics.
The government should raise taxes on higher income families in order to raise more revenue.
The government should provide a safety net for those in society that are incapable of thinking care of themselves
You should get a 5 on the AP Microeconomics Exam.
definition: deciding whether to do or use one additional unit of some resource
Most decision are not "all or nothing" propositions
Involves deciding whether or not to consume the next unit
Economic Profit = Accounting Profit - Opportunity Cost